Friday Financial Tidbit-Tax brackets

The deadline to file your income taxes for 2011 has come and gone, but it is never too early to start thinking about 2012. One of the most common things that people get confused about when it comes to taxes is tax brackets. They often think that if you are in one income bracket then all your income is taxed at a certain percentage. However that is not true, as our current federal tax system is a progressive system where the tax rate increases as the income increases. Now, I am not a Certified Public Accountant (CPA) but here are the 2012 US federal income tax brackets courtesy of savingtoinvest.com:

As you can see from the graph to your right, if you are married filing jointly, the first $17,400 you earn in 2012 is taxed at a 10% rate. This applies no matter if you make $20,000 or $200,00, the 10% tax is applied to your first $17,400 you earn. Now if you do make $200,000 this year you would be in the 28% bracket. But you would only pay 28% on your income between $142,700 and $217,450, not on all of your income.

Hopefully this clears up any confusion you might have about tax brackets. Remember, it is important to know what your tax bracket is. But realize that by earning extra income and putting yourself into a new bracket, that new rate does not apply to all of your income.

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About Jon White

Giving people hope and seeing them win with their finances is something I have a strong passion for. Because of this passion I started JW’s Financial Coaching in the summer of 2010. Financial coaching has allowed me to combine my passions of finances, teaching, and helping others by helping people get on the right track financially. I'm interested in hearing your story so please do not hesitate to interact with me through social media.
This entry was posted in Friday Financial Tidbit, Taxes and tagged , . Bookmark the permalink.

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